How Micro housing is becoming big in India

As a strategy, it does not directly give home loan to a borrower. Instead, it gives credit to mature self help groups (SHGs), as their payment history and behaviour is known.

"These SHGs, in turn, lend to members - incremental loans with average ticket size of Rs 40,000, with three-four years repayment period," he added.

Similarly, International Finance Corporation (IFC), the National Housing Bank (NHB) and the Rajasthan government are coming together to establish a housing finance company to provide home loans to low-income households in the state.

IFC's own stake and mobilisation through stakeholders such as NHB, government of Rajasthan, and another private sector player will help establish the company with an initial capital of $22 million (Rs 100 crore).

How Micro housing is becoming big in India

The exact shareholding structure is under discussion. "We are in talks with an established housing finance company, which will take substantial stake in the company to start operation," said NHB Chairman R V Verma.

"Involvement of multiple stakeholders and the ability to build successful public-private partnerships is crucial to developing an ecosystem that will improve accessibility of housing finance and affordable housing. We will support the company through equity, training, and refinancing," he added.

According to National Urban Housing and Habitat Policy estimates, of the total shortage of about 25 million affordable housing units in India, 98 per cent constitutes demand from economically stressed and low-income households.

"This is a first-of-its-kind model to harness market opportunities while making affordable housing loans available. If found successful, we will try to replicate in other states," Verma said.

How Micro housing is becoming big in India

Recently, non-banking finance companies (NBFCs) have shown interest in entering the affordable housing sector, which till recently, was not considered a feasible business proposition.

NBFCs like Muthoot Fincorp, Mahindra and Mahindra Financial Services Ltd and even an established housing finance player such as Dewan Housing Finance Corp are extending small-ticket loans to home buyers.

"Commercial banks find it difficult to extend loans to these borrowers where the income is not documented. These firms, which offer loans of Rs 2-6 lakh to borrowers with a monthly income of Rs 6,000-12,000, aim to cash in on the emerging middle class in rural and semi-urban areas," said an analyst.